ii Election result comment: Clarity, questions and big winners

As financial markets digest the election result, our experts explain events and some tips for investors.

-    Clear winners of the day are likely to be those that had been affected by the prospect of a Labour socialist leaning.

-    Banks, housebuilders, companies in the sights of Labour for nationalisation – all these are rallying strongly.

Despite being billed as the most unpredictable election in living memory, the 2019 General Election delivered a significant Conservative Party majority, a result that all the surveys had been predicting for weeks.

Lee Wild, Head of Equity Strategy, interactive investor says: “Our series of election polls, held in the run up to 12th December, revealed that the majority of investors thought the Conservatives would have the most positive influence on the stock market. They were probably right, given the FTSE 250 index, packed with companies making money in the UK, surged as soon as markets opened on the 13th. 

“Even the FTSE 100's overseas earners rose despite a strong British pound. City traders had warned that a Labour win would send share prices tumbling, and that a hung parliament would mean more months of uncertainty around Brexit.

“Whether you're a Leaver or Remainer, this election result does give some certainty to investors, at least until we hear back from politicians negotiating a new trade deal with the EU.”

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Rebecca O’Keeffe, Head of Investment, interactive investor, says: “The election has provided a clarity of sorts for the market, delivering a clear mandate for Boris Johnson. This result removes the uncertainty around whether Brexit will get done, but it still leaves investors with several questions, the key one is what sort of Brexit it might be?

“A large majority means the Prime Minister has options and the question is if he will swing to a hard Brexit or will he be prepared to maintain closer ties with Europe?  When his position was dependent on the support of the ERG, he took a hard line on Europe. That may no longer be so necessary. But equally, with a large majority he may be emboldened to take a harder line in negotiations with Europe.

“The result is positive for sterling, which was quick to rally on the exit polls last night and has held on to most of those gains. Some sterling shorts had been closed in recent weeks, but there were a lot of downside hedges put in place prior to the election. These have clearly been burned, and any remaining GBP shorts could get squeezed unpleasantly over coming days.

“This currency effect means it is less positive for the sterling price of international companies listed in the UK so the FTSE 100 may not do quite as well (in GBP) because of its global nature and the negative correlation between sterling and the value of large global UK listed stocks. 

“The decisive result is very positive for UK-focused companies, which have underperformed other markets. There is the potential for pent up investment from overseas, including perhaps M&A activity if international players have been waiting for Brexit clarity. Domestic companies, including those in the FTSE 250 or UK smaller companies including AIM should benefit strongly. TB Amati UK Smaller Companies and Henderson Smaller Companies (LSE:HSL) are investment options that are likely to do well. 

“However, the clear winners of the day are likely to be those that had been affected by the prospect of a Labour socialist leaning. Banks, housebuilders, companies in the sights of Labour for nationalisation – all these are rallying strongly in the wake of not only a Labour defeat, but the knowledge that Jeremy Corbyn will not contest any future election.

“Overall, there is no doubt that last night’s election vote delivered what the UK market needed and removed any doubt about the UK leaving the EU. With this kind of majority, Boris will certainly be able to pass a new withdrawal bill by January 31st.  What comes after that will be an altogether more interesting question.”